Non-scientific trade barriers create dilemma

The big news in the meat industry in recent weeks has involved two of our leading export markets, Russia and China. Neither country allows the production, sale or use of the two beta agonists that are registered for use in the United States, and in the past few months both have taken steps to enforce their bans on beta agonist residues in imported pork and beef.

The first to move was Russia, which notified the United States and other countries in December that they were required to certify that their pork and beef exports were free of ractopamine residues. When the U.S. government did not implement a program for certifying exports, Russia closed its market to imports of beef and pork from the United States. In the past week China also has notified USDA of its intention to implement new enforcement measures for its zero tolerance policy for ractopamine residues in pork imported from the United States.

Since beta agonists are widely used by U.S. producers, the only practical way to meet Russia’s or China’s zero tolerance requirement would be to segregate meat from animals that have been fed beta agonists from those that have not. This kind of product segregation program would add costs to the packer in addition to those incurred by producers who forego the use of these compounds. Nonetheless, before the Russian market closed, several large pork packing companies were giving serious consideration to implementing ractopamine-free programs and dedicating some part of their production to a product that is free of ractopamine residues.

This raises several important questions which have implications for the U.S. meat industry’s participation in the global marketplace and which, therefore, deserve the careful consideration of every member of this industry.

To understand why these packers are interested in meeting Russia’s zero-residue standard requires a closer look at the economics of the meat export business. Although Russia only accounts for roughly 7 percent of U.S. beef exports and 4 percent of pork exports, this understates its importance to the U.S. red meat industry that in 2012 found willing buyers for American pork in 116 different countries and beef in 132.

Last year Russia imported $566 million of U.S. beef and pork, but most of this trade was in only a few items (inside and gooseneck rounds, beef livers and hams). Because Russian buyers pay a premium for these items over customers in other foreign markets or here at home, where excess supplies of round and ham cuts as well as livers often put downward pressure on prices, the closure of the Russian market will have a larger negative impact on live hog and cattle prices here in the U.S. than the value of the lost trade alone. This is because these items will be sold at lower prices and the added supply will depress prices on the U.S. market. When you take into consideration the lower prices that will be paid for these items, the impact of losing the Russian market is closer to $800 million for the U.S. industry as a whole. This converts to roughly $15 per head for cattle and $4 per head for hogs.

China adds another dimension to the discussion. Although it remains closed to U.S. beef, China in 2012 purchased nearly 16 percent of all U.S. pork exports by volume, accounting for more than $704 million of U.S. product. That translates to about $4.75 per head for variety meat alone and closer to $7 per head when muscle cuts are included. Like Russia, China pays a premium for items that are undervalued by other markets. From feet to snouts to stomachs, the offal items purchased by China have a minimal alternative value, and up to 50 percent of the entire U.S. production of certain offals and byproducts is exported to China. While these are attention-getting numbers for an industry that operates with very low margins, Russia’s decision to enforce its ban on beta agonist residues and the recent action by China are not isolated events. Taiwan and the EU also have ractopamine-related import restrictions in place, and there are other markets where the lack of domestic regulations regarding beta agonist usage and residues make the trade environment uncertain. Over the past few months, as packers have contemplated how they would respond to Russia’s enforcement of its ban on beta agonist residues, they have also had in mind opportunities for supplying customers in these other markets.

The U.S. red meat industry has accomplished remarkable increases in efficiency and productivity by adopting new production technologies as they have been approved and brought to market. The use of those technologies has been a significant factor in the U.S. industries’ efficiency, with beta agonists alone adding up to $5 per head to producer profitability. Because our industry is so technology-driven and exports account for a growing share of our production, we have become strong advocates of the need for countries to base their health standards on the best available science. At the same time, one of the keys to the success the U.S. red meat industry has enjoyed in export markets has been our dedication and commitment to meeting customers’ expectations.

Russia’s ban on residues of beta agonists in imported meat brings into clear focus the dilemma that arises when our support for science-based trade and meeting the demands of our customers collide with a foreign country’s non-science-based import requirements. In the days and weeks leading up to the Russian market closure, the industry worked closely with the U.S. government to find a way to preserve access to the market. The industry has encouraged our government to press Russia to adopt a science-based standard for beta agonists. At the same time, we also asked USDA to develop a program for certifying residue-free exports. This two-track approach reflected the industry’s continued commitment to safe, effective production technologies and global trading rules that set science as the foundation for health standards. But it also reflected the industry’s commitment to supplying markets with the products they demand.

We remain hopeful that a way can be found to resume beef and pork exports to Russia but, for the foreseeable future, this is likely to be possible only if the U.S. and Russian governments can agree on a program under which USDA will certify beta agonist residue-free exports. Many in the industry are concerned that agreeing to such a program for Russia sets a precedent that could be followed by other countries. This is why it is so important for the U.S. government to continue to defend the principle of science-based trade and to press other governments to respect international scientific opinion on the safety and low risk of these compounds when properly utilized.

As we think about the implications of decisions that the industry and the U.S. government make in response to Russia’s decision to close its market to our exports, it is important to keep in mind that beta agonists are not approved for use in the EU, which is the principal pork exporter to Russia (and China). In addition, other pork exporting countries where beta agonists are approved for use, notably Canada and Brazil, are working with the Russian government to secure continued access to the Russian market.

Russia’s move to enforce its beta agonist policy is a clear reminder that if we are going to succeed in a very competitive global market, we are likely to be faced with some difficult decisions. Some of these decisions could require compromises that none of us like, but increasingly we are learning that this is an inevitable consequence of participating in a growing, lucrative and complicated global market.